TheCorporateCounsel.net

Earlier this week, the SEC’s Office of Inspector General released its annual report on the agency’s top management and performance challenges. This year’s report is 20 pages – compared to last year’s 34-page review. This reflects the OIG’s cycle of preparing a detailed examination in one year and following up with a shorter summary the following year.

In the OIG’s view, the current (anti-)regulatory environment is one of the biggest risks the SEC currently faces. The report lists several rules that were recently vacated or stayed, and observes:

The current regulatory environment may lead to increased forum shopping by petitioners and extended periods of uncertainty about the permissible scope of agency action.

With heightened judicial scrutiny, agencies, including the SEC, must continue to develop a thorough administrative record, including meaningful opportunity for public participation and reasoned responses to public submissions. The SEC already invests considerable resources toward these ends, but should be prepared for additional litigation, as industry and public interest groups may take opportunities to challenge regulations.

The OIG also notes:

The SEC should anticipate increased litigation by parties challenging current and future rulemakings and ensure that new regulations will withstand judicial scrutiny.

Over the past year or two, the SEC has been signaling that it understands these risks, by taking extra time to consider comments and building out the cost-benefit analysis in its adopting releases. But the OIG is doing more: it’s auditing the rulemaking process and internal controls, focusing on:

– The opportunity for interested persons to participate in rulemaking;

– Assessing and documenting the impact of proposed rules on competition, efficiency and capital formation; and

– Ensuring that staff with appropriate skills and experience are involved in formulating and reviewing proposed rules.

It expects to complete a report on this in 2025. That said, in light of this week’s election results, there’s a chance that in the near future, the SEC won’t care so much about adopting and defending new rules (at least, the ones that arguably make being a public company more difficult). John will be blogging in the coming week about what other developments might be in store at the SEC next year…

– Liz Dunshee